Ways India’s Economy Is Set to Bloom if Monsoon Predictions Come True

While the first drops of India’s annual rains are still more than a month away, weather watchers are already predicting the country’s painful dry spell will end this year with higher-than-average monsoon rains.

The India Meteorological Department said last week that rainfall during June to September will likely be 106% of the long-term average. Here are a few of the ways the Indian economy will be nourished by the rains if they are abundant during rainy season.

Higher than normal monsoon rains will increase agricultural production. “Better monsoon will revive the farm sector, which has been weighed down by subdued agriculture output and falling farmers’ income,” said Madan Sabnavis, chief economist at CARE Ratings, an Indian credit-risk advisory firm in Mumbai. More than half of the country’s workforce is employed in the farm sector and about 60% of the country’s farmlands depend on seasonal rainfall for irrigation.

Good rains will cap food inflation, an important determinant for interest rates in the country. Lower inflation will not only “help bring down interest rates, but also boost the value of rupee,” Mr. Sabnavis said. India’s central bank cut its key interest rate for the first time in six months early this month with Gov. Raghuram Rajan saying he would keep looking for opportunities to keep easing.

The demand for motorcycles, scooters and and low-cost cars and tractors climbs when there is a bountiful monsoon as farmers have more spending money. The prediction of robust rains last week lifted shares of Mahindra & Mahindra, India’s largest tractor maker as well as India’s main motorcycle makers–Hero MotoCorp, Bajaj Auto and TVS Motor.

A good monsoon would revive demand for fertilizers and pesticides. Many of the fertilizer and pesticide firms suffered through a slowdown in sales over the past two years as poor rainfall meant farmers planted less. Among the shares that have already been helped by the monsoon forecast are Insecticides (India) Ltd., Rashtriya Chemicals and Fertilizers and Deepak Fertilisers & Petrochemicals.

Expectations of a good monsoon will benefit fast-moving consumer-goods companies as the extra money sloshing around villages will translate into more purchases of everything from shampoo sachets to cans of Coca-Cola. This could prove an important source of sales expansion as the broader economy has been showing signs of struggling. Shares of consumer goods companies with big rural footprints such as Hindustan Unilever, Dabur and Godrej Consumer Products rose last week on hopes of better sales.

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